LVR restrictions remain unchanged as housing risks stay contained
The rules governing how much banks can lend to borrowers with smaller deposits will remain unchanged, following the Reserve Bank of New Zealand's latest review.
The RBNZ reviews its macroprudential settings annually to make sure they remain appropriate for housing market conditions and financial stability risks. Its Financial Policy Committee considered factors including property prices, the risk profile of recent mortgage lending, financial strain among existing borrowers and the resilience of the banking system.
RBNZ Assistant Governor Financial Stability Angus McGregor said current conditions did not warrant a change.
“Housing risks are currently contained. Nationally, house prices have remained broadly flat in recent years, while mortgage lending growth has been modest and the share of higher-risk lending remains manageable,” he said.
What the LVR rules mean for borrowers
Loan-to-value ratio (LVR) restrictions limit the proportion of new mortgages banks can issue to borrowers with smaller deposits.
Under the current settings, banks can allocate up to 25% of new owner-occupier lending to borrowers with an LVR above 80% – generally meaning they have a deposit of less than 20%.
For investors, banks can allocate up to 10% of new lending to borrowers with an LVR above 70% – generally meaning they have a deposit of less than 30%. These settings have been in place since December.
Importantly, these limits apply to banks' overall lending rather than guaranteeing that an individual borrower with a smaller deposit will qualify for a mortgage.
Other lending restrictions still apply
Debt-to-income restrictions also remain in place alongside the LVR rules.
Mr McGregor said the two measures work together to reduce the risk of excessive high-risk lending, particularly during periods when interest rates are low and housing demand is strong.
The RBNZ intends to review its macroprudential settings again in around 12 months, although it can bring that review forward if conditions change.
For prospective buyers, the key takeaway is that having less than a 20% deposit doesn't automatically rule out getting a home loan. Contact us if you'd like to understand how the LVR rules apply to your situation and explore your borrowing options.